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A guide to remortgaging

Remortgaging can be a very sensible thing to do to save money over a long period of time. You may be able to switch your mortgage to a lender that offers a competitive rate, or possibly even remortgage and borrow slightly more money to carry out improvement works on your home.

When should I remortgage?

If your current mortgage is coming to the end of a fixed interest or discounted period, shop around to see whether you can move it to another lender who will give you a better deal than the standard rate you are about to be put on to.

If your home has risen in value since you bought it, remortgaging can provide a cost-effective way of borrowing large sums of money at low mortgage rates of interest.

Things to think about when remortgaging

Talk to your lender to see if there are options you can consider, and talk to a mortgage broker, who can quickly shop around the market for you. Make sure you understand the costs of your mortgage – the total amount you have left to pay, any penalties you will pay if you move, and the monthly amount you are paying. You can then compare this with the cost of a new mortgage to evaluate the benefits (or not) of changing.

Make sure remortgaging is your only option before you do it. Do you need to go through the hassle of changing? If you are remortgaging to borrow more money, find out whether you can get the extra money through an unsecured loan. The less you secure against your house the better because you won’t lose your property if you can’t repay the loan.

What age are you? If you are getting on in years and you want to leave the home to children, do you really want to saddle them with secured debt that will force them to sell the property when you die?

How it works

Your mortgage lender will want to know three things when you remortgage:

what your property is worth

how much you earn

how much equity you have in your home

Most lenders will require you to have at least 10% equity in your home. To calculate this, simply work out how much you owe, in total, to your mortgage lender and subtract this from the value of your home. Take whatever is left, divide it by the home value and multiply by 100 to find the percentage.

Once you hav an agreement in principle, the new lender will ask a surveyor to value the house, and if his valuation agrees with yours, the lender should be happy. You will need to pay for the valuation (between £150 and £300). Don’t ask an estate agent for a valuation and expect the bank’s surveyor to agree with this valuation.

Other things to think about

If you already have two mortgages on your house, remortgaging may be a good way to consolidate both mortgages, but be wary of increasing the overall cost of what you owe and reducing the equity in your home considerably.

Make sure you can afford the repayments. Don’t just assume you will manage. If the price isn’t affordable, then keep shopping around with your broker.